PG&E bankruptcy judge raises prospect of government running company

PG&E crews work to restore power along Ygnacio Valley Road near Civic Drive in Walnut Creek, Calif. Wednesday, Feb. 27, 2019 after a large tree fell across Ygnacio Valley Road due to heavy overnight winds and rain, blocking traffic in both directions.

Photo: Jessica Christian, The Chronicle

Pacific Gas and Electric Co.’s bankruptcy judge publicly wondered Wednesday about what would happen if another federal judge put the government in control of the embattled company.

U.S. Bankruptcy Judge Dennis Montali raised the hypothetical during a San Francisco hearing about PG&E’s request to access the full $5.5 billion in credit and loans it has lined up from major banks.

Montali said that U.S. District Judge William Alsup, who is overseeing PG&E’s probation arising from the 2010 San Bruno pipeline explosion, could theoretically order a trustee to be appointed to run the company instead of its current leadership.

Alsup, whose courtroom is just a few floors up from Montali’s, is considering whether to impose new probation conditions on PG&E because of its role in recent deadly wildfires.

Montali said he is mindful of how Alsup’s criminal proceedings could shape PG&E’s efforts to reorganize itself under Chapter 11 of the U.S. Bankruptcy Code.

“I’m not here to criticize my upstairs colleague, but it could happen,” Montali said. “I can’t ignore the risk of a Chapter 11 trustee.”

Montali wanted to know how PG&E’s financing would be affected if a Chapter 11 trustee were appointed to the company — a move the bankruptcy judge could also make himself.

Earlier in the hearing, Montali questioned how the credit and loans PG&E has secured — known as debtor-in-possession financing — would be affected if another catastrophic wildfire breaks out while the company is still in bankruptcy court proceedings.

Paul Zumbro, an attorney representing PG&E, said the possibility was taken into account when the company structured the deal with the banks. He did not believe it would constitute a default under the terms of the financing.

Still, Montali indicated he had reservations about the proposal PG&E put before him. He was particularly concerned that the terms of the deal might not give the bankruptcy court enough of a say if some outside event potentially triggers a default per the terms of the financing.

PG&E and its lenders wanted Montali to rule on the financing Wednesday, but he continued the matter until March 27 in order to get input from a committee in the case that includes fire victims with claims against the company. The judge said he will not require another hearing if the parties find they are in agreement before then.

J.D. Morris is a business reporter covering energy, including PG&E, Tesla and California’s clean power initiatives.

Before joining The Chronicle, he was the Sonoma County government reporter for the Santa Rosa Press Democrat, where he was among the journalists awarded a Pulitzer Prize for their coverage of the 2017 North Bay wildfires.

He was previously the casino industry reporter for the Las Vegas Sun. Raised in Monterey County and Bakersfield, he has a bachelor’s degree in rhetoric from UC Berkeley.